We consider the economic implications of a compressed wage structure
which is exogenously determined by institutions. An important
feature of our analysis is that human capital is endogenous and can
be achieved either as formal education or as informal training within
firms after entering the labour market. While institutional wage compression
decreases the incentives of individuals to become educated, it
increases the incentives of firms to invest in training. As a result, the
net effects of wage compression on the aggregate human capital level
and GDP are ambiguous. Moreover, with wage compression, a skillbiased
technological change may cause wage inequality to decrease.
Keywords: Wage compression, training, education, inequality, institutions,
skill-biased technological change.
JEL: I21, J31, J5, O33.

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We examine the impact of discrimination on labour market performance when workers are subject to a risk of losing skills during the experience of unemployment. Within a search and matching model, we show that all natives and immigrants are affected by discrimination. Discrimination in one sector has positive spillovers, inducing employment increases in the other sector. Discrimination may induce immigrants to train more or less than natives, depending on the sector where it is present. Welfare tends to be most negatively affected by discrimination among highproductivity workers.

This paper studies labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both effiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different unemployment risks. We show that in such an environment, training programmes that are targeted to the unemployed complement passive transfers (UI benefits), unlike a general training subsidy. Combining passive subsidies with a training subsidy conditioned on the individual being unemployed (for a while) - the typical Active Labour Market Programme - implies a favorable trade-off between equity and efficiency which encourages high spending on training.

This paper studies how interest group lobbying of the bureaucracy affects policy
outcomes and how it changes the legislature’s willingness to delegate decision-making
authority to the bureaucracy. We extend the standard model of delegation to account
for interest group influence during the implementation stage of policy and apply it
to different institutional structures of government. The paper addresses the following
questions: First, how does the decision to delegate change when the bureaucratic agent
is subject to external influence? What cost does this influence impose on the legislative
principal? Finally, how susceptible are policy choices to bureaucratic lobbying under
different government structures? In answering these questions, the paper seeks to provide
a comparative theory of lobbying and to explain the different patterns of interest
group activity across political systems.

This paper uses a register dataset for the entire Danish population to examine the effect of early
motherhood on labour market measures, health care measures and family measures for the mothers
and their offspring. The dataset is divided into three groups according to the age of the woman at
the time of her first child delivery. Using standard cross-sectional econometric techniques the
results show that very young mothers (aged 16-21) have significantly lower employment rates,
higher propensity to receive welfare benefits and a lower wage income. Children of very young
mothers have a higher family replacement rate, more services received from General Practitioners
and a higher propensity to receive ADHD-medications. The majority of the effects reported are also
significantly greater for mothers who were aged 22-25 at the birth of their first child compared to
older mothers.

Over the last 25 years the Danish economy has had difficulties in growing as fast as
other EU countries and the United States. While the average growth difference is small, it
signals that if this trend persists into the next century, Denmark will not be able to maintain its
high position in the world income hierarchy. Moreover, during these years, the number of
individuals living on transfer incomes have increased dramatically. Although we interpret
both tendencies as signals of structural weaknesses, we are also aware that these developments
may reflect that other goals in economic policy have been pursued, such as protecting the
environment and/or achieving certain redistributive objectives. This paper analyzes this and
other broad policy issues of importance for Denmark.

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This paper introduces an index of tax optimality that
measures the distance of some current tax structure from the optimal tax
structure in the presence of public goods. In doing so, we derive a [0, 1]
number that reveals immediately how far the current tax configuration
is from the optimal one and, thereby, the degree of efficiency of a tax
system. We call this number the Tax Optimality Index. We show how
the basic method can be altered in order to derive a revenue equivalent
uniform tax, which measures the size of the public sector. A numerical
example is used to illustrate the method developed.
JEL Code: H21, H41.
Keywords: Tax optimality index, excess burden, distance function.
Authors Affiliations: Raimondos-Møller: Copenhagen Business School, CEPR,
CESifo, and EPRU. Woodland: University of Sydney.

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This paper analyzes the effects of mixed public-private R&amp;D incentives and empirically tests whether patents that were publicly sponsored are more important than non-subsidized ones. Blending patents and public subsidies will allow the funding agency to subsidize inventions that would otherwise not elicit investment because the private incentive will not fully cover the cost of the invention. Thus, the policy maker will only subsidize inventions that have a high social value. The empirical analysis shows that subsidized inventions result in more important patents, as measured by the number of forward citations.

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This paper examines the effect of taxes on the individuals' choices of educational direction, and thus on the economy.s skill composition. A proportional labour tax induces too many workers with high innate ability to choose an educational type associated with high consumption value and low effort. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.
JEL codes: J64, J68, H21, H24
Keywords: Unemployment, matching, education, optimal taxation, tuition fees

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Internationalization offers enhanced opportunities for individuals to place savings
abroad and evade domestic saving taxation. This paper asks whether the concomi-
tant loss of saving taxation necessarily is harmful. To this end we construct a model
of many symmetric countries in which public goods are financed by taxes on saving
and investment. There is international cross-ownership of firms, and countries are
assumed to be unable to tax away pure profits. Countries then face an incentive
to impose a rather high investment tax also borne by foreigners. In this setting,
the loss of the saving tax instrument on account of international tax evasion may
prevent the overall saving-investment tax wedge from becoming too high, and hence
may be beneficial for moderate preferences for public goods. A world with 'high-
spending' governments, in contrast, is made worse off by the loss of saving taxes,
and hence stands to gain from international cooperation to restore saving taxation.
JEL-Classifcation: H87, H21
Keywords: Capital income taxation, cross-ownership, coordination